Blue Sky Laws Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Blue Sky Laws, written in plain English, along with examples of how it is used.
What is Blue Sky Laws?
(n) Blue Sky Laws are the Law which control or otherwise regulate corporate entities from collecting investment from public as capital of such companies without having substance or means to safeguard the public money. Eg. Securities and exchange control board sanction is required while advertising issue of shares or stock to the public
History and Meaning of Blue Sky Laws
Blue Sky Laws are state-level securities laws first introduced in the United States in the early 20th century to protect the public from fraudulent or unscrupulous investment schemes. The term "blue sky" refers to the speculative investments that are often sold with no real substance, i.e., the investment is little more than the blue sky itself.
The first blue sky laws were enacted in Kansas in 1911, and other states soon followed. The states used these laws to enforce a variety of provisions designed to protect investors, including the registration of securities, the licensing of brokerage firms and investment advisers, and the regulation of sales practices. In 1933, the federal government passed the Securities Act, which established the Securities and Exchange Commission (SEC) and gave it the power to regulate the securities industry at the national level. However, the states have retained their blue sky laws, which continue to play a vital role in regulating the securities industry at the state level.
Examples of Blue Sky Laws
A company that wants to issue securities in a particular state must first register with that state's securities regulator and file a prospectus that describes the investment's risks and the company's financial statements.
An investment adviser who wants to do business in a particular state must first register with that state's regulator and meet certain requirements, such as passing an exam and maintaining a minimum level of net worth.
A broker-dealer who wants to sell securities in a particular state must first register with that state's regulator and meet certain requirements, such as maintaining a minimum level of capital and having a minimum level of insurance.
Legal Terms Similar to Blue Sky Laws
Securities Act - A federal law that regulates the sale of securities at the national level.
Securities and Exchange Commission (SEC) - A federal agency that regulates the securities industry at the national level.
Investment Advisers Act - A federal law that regulates investment advisers at the national level.
Broker-Dealer Regulation - The set of rules that govern the activities of broker-dealers, including their registration, capital requirements, and sales practices.
Uniform Securities Act - A model law that has been adopted, with some variations, by most states to regulate securities at the state level.